A Prelude to the Financial Collapse

By Kellene, Preparedness Pro on 8 August 2011 - 8:28pm

Because of the serious nature of this article and the consternation it may cause some of you, please allow me to say first and foremost that I still believe solely in PEACEFUL preparedness. In spite of what I’m sharing with you today, I want you to know that I am actually more full of peace than ever before because of where I stand spiritually, mentally, physically, medically, etc. in my efforts of self-reliance. I reiterate to all of you who will read this article today that no matter what the external circumstances of your life are right now, no matter what you see paraded through the news, I KNOW without a shadow of doubt that it is STILL possible for you to take action which will create more peace than fear in the midst of these trying circumstances. This is not just some cutesy little word manipulation, folks. It’s 100% real. Thriving is still a realistic option for you and your family if you will move forward in pursuit of peaceful independence, not panic. With that being said, let’s talk about what’s really going on with the S & P downgrade of the U.S.’s credit rating and what counter-moves you need to take in order to ensure peace and comfort in your family.

Unless you’ve been off on vacation somewhere or have refused to turn on the news lately, you know about the S & P downgrading the credit rating of the United States of America. But what you may not know is what that means exactly and what the ramifications are, as well as the unavoidable domino effects to expect from it.

Financial Credit Rating

First of all, while some of us may look at a AA+ rating as insignificant, after all, it’s better than any one of us ever got in school, right? But if this were compared to the grading system that so many of us are familiar with from our school days you should know that the AA+ from an AAA rating is like going from an A grade to a C. In the world of credit ratings, an AA+ is a fall from grace of TWO grades. AAA is the top rating, then it goes to AAA- and then to AA+. For each downgrade in this type of environment you can expect a significant ripple effect through Wall Street and the global economy. Since S & P chose to do this on a Friday, the backlash that you are seeing today is only phase one of the necessary consequences to the downgrade. Ironically you can expect S & P to further lower their credit rating as a direct result of the ripple effect of the consequences which will hit us because of this initial downgrade. Yup, you read that correctly. The downgrade will be the stimulus for yet another downgrade. The news of last Friday will play out as a vicious public circle which will spiral downward for some time.

Next, let’s understand the seriousness of this downgrade and why S & P issued it singularly, without the other rating agencies following suit. For starters, S & P is the expert when it comes to rating sovereignties; the expertise of Moody’s and Fitch is focused on corporate ratings. This doesn’t mean that Moody’s and Fitch won’t eventually reflect the downgrade of S & P, in fact, I would be surprised if they didn’t do so shortly—they tend to follow S & P in this aspect—but the reason why it’s so significant that S & P issued this rating is because this is their field of expertise—rating the value of the entity that's issuing the financial instruments. It should also be taken into account that S & P has some iron-fisted political alliances with our government and with Wall Street. When you consider this close relationship, it helps to better appreciate just how bad things are for us economically-- to be so severe that S & P would strain these profitable relationships from the minute they initiated the downgrade to the AA+. In fact, if S&P truly was an unbiased and truly independent third party, I’m willing to bet significant sums of money that there would have been a much lower rating than AA+ had there not been any such relationships.

Financial History

History has shown us just how tightly these existing relationships are. After all, it was S & P and Moody’s who rated all of those commercial mortgage backed securities as AAA, which led to the significant financial crisis we find ourselves in right now. Without one iota of concern to their integrity and expertise, they rated hundreds of billions of dollars of bogus mortgages AAA. So, for S & P to publish such a devastating grade to the U.S. you can bet it was not done without careful, hand-wringing type of consideration. S & P makes their money by rating financial instruments of sovereign entities such as cities, states, and nations. S & P is also responsible for rating every county, city, and state in the U.S. which in turn enables them to sell bonds in order to raise money. If the head of the snake has just been downgraded from a AAA to a AA+ then you can be certain that there will be some painful backlash to these other entities as well.

What I’m also trying to say is that the AA+ is no doubt a softened blow than the grade which would be more accurate. In other words, just like the unemployment numbers we’re constantly provided, it’s much worse than what the media is permitted to provide. Translation: AA+ is only a smidgen of what’s to come later. Keep in mind that S & P warned the Administration that if they couldn’t come up with 9 trillion in cuts then this would be the consequences. Well, Congress only came up with $2.1 trillion in cuts. So, you do the math. Just how much worse will the rating get? Think of it in terms of a homework assignment that weighs heavily on your grade for the entire semester. If the professor says you need a 10 page report in order to qualify for the best grade, but you turn in less than a quarter of that requirement, what would you expect the grade to reflect? B+ instead of an A+? I don’t think so. In other words this saga definitely has only begun. The term “to be continued” is quite appropriate.

Let’s also consider that this is the FIRST and ONLY time that the U.S. has received this kind of a downgrade since the origination of these credit ratings in 1917. As you know, our U.S. president is reportedly the brunt of the some of the lowest political approval ratings in history, but he also now has the distinction as being the only president who’s economy was so bad it justified such a rating. You can bet that the threat of such an unfavorable distinction caused every possible tactic available to be tried in an effort to thwart such a rating. And yet the downgrade still occurred because it was imperative in spite of any external threats of consequence.

So what caused S & P to cannibalize their most profitable line of customers? Well, that would be the fact that they have to answer to the entire world of international investors and customers. Look at it this way; suppose you’ve got a Chinese drug dealer who has entrusted his second in command to be the only one who’s authorized to inventory all of their precious inventory, and to likewise ensure that the appropriate amount of money comes in exchange for that inventory. If that trusted gang member fails in their count and fails to represent the true amount of their asset, then they will face dire consequences. Likewise the value of the financial instruments which the U.S. sells in order to raise money is based solely on what the rating companies (such as S & P) say they are worth. For S & P to look the other way any longer—and continue to deny any need to downgrade the value of U.S. assets in light of so many obvious indicators—would be professional suicide. It would annihilate all of the credibility of their entire operation and the domino effect of that would surely be a worldwide economic collapse because it would put into question the value of every single asset that the S & P has ever graded and essentially make them worthless.

Now, if you’re China or Japan who have both invested heavily in U.S. assets, you don’t want anything to indicate that what you’ve bought and paid for so heavily is suddenly worthless. If you’re Spain, who was just bailed out by some U.S. monetary aid, you don’t want to discover that the paper money they just lent you is no more valuable than Monopoly money, right? But imagine if you’re one of the nations who have only recently been able to avert a financial disaster in your own country because of the aid which the U.S. has provided? If the value of that aid is decreased because of this rating, your nation could find itself actually worse off than when you initially needed the financial aid! There’s no such thing as a “grandfather clause” when it comes to evaluating the worth and spending power of an asset. When it comes to the financial world, the value of an asset will fluctuate even if you do nothing more or less with it than put it in your pocket. And yet THIS is exactly what you’re seeing play out right now; and THIS is exactly why you’re seeing the reaction on Wall Street which was necessarily set in motion in direct response to the “budget cut deal” being passed—even before S & P publicly announced their downgrade. There’s a litany of mathematical facts that we’ve been ignoring for a long time; the consequences of which are impossible to ignore once the highly profiled “debt deal” went through. Wall Street, S & P, foreign rating companies, and soon to be the other rating companies here in the U.S. can no longer hide behind a façade and keep saying that all is well. Doing so could actually trigger a world war. Why? I’ll explain it as best as I can if you’ll indulge me by allowing me to use another analogy.

You’ve no doubt seen a movie or two in which a scenario plays out that someone at the poker table is cheating; when they are discovered, the fit really hits the shan. Well, this is essentially what the U.S. has been doing for the last decade—cheating at cards. Unable to draw the cards they need for a winning hand, they have simply manufactured new cards which make their way from their pocket into the poker deck of cards on each round. Any influx of government cash/spending going into our economy is exactly like that. Programs such as Cash for Clunkers, tax rebates, spending on large projects that otherwise wouldn’t get the time of day—such as revising and reprinting the census forms and spending the money on postage to send every American a notification that their census form is coming in the mail—and so many other like programs. Such programs have NOT been put into play to help Americans, rather they have only been triggered so as to incorporate more of the winning cards into the deck on behalf of the poker player who’s cheating. What’s essentially happened over the last two banking days is that S & P has noticed the fact that there are 150 cards, including 20 aces, in the standard deck of 52 cards—thanks to the shifty behavior of U.S. You’ve no doubt seen what happens to someone who’s been cheating at poker while playing with the big league players. The only way to avoid losing a limb or being killed all together at the hand of the other poker players (such as Japan, China, Russia, Brazil, etc.) is to feign dramatic shock and disappointment and then ceremoniously remove the cheating player from the game. While that may make for good posturing, the problem is that the other players of the game are relying on the U.S. who's playing in that poker game, in order for them (Japan, China, etc.) to meet their own domestic obligations. Without the U.S. playing at the table, their own economies are now sorely compromised. You see, if the U.S. wins the game, then they will lend more money out to those nations in need. If the U.S. were to lose the game, then the other players profit by those losses as they get more of the pot for themselves. But if the U.S. is deemed as an insolvent player in the first place—well, then you have a real problem because it brings into question every poker chip that was ever won.

There’s much more detail to go into, specifically regarding what this credit rating means to us right now, today, and what our response needs to be in order to ensure the maximum amount of peace and the least amount of impact within our families. So be sure to tune in as I deliver the second half of this information. In the meantime, please do not panic. Do not go out and run up your credit card in hopes that you can get more “stuff.” Breathe deeply, inhale a little bit of pure lavender essential oil, and take stock of where you are presently with regards to your preparedness efforts. “See” you tomorrow.

Anyone with a rudimentary understanding of finance and economics laughs at S&P. While a lower credit rating should increase the United State's borrowing costs, Treasury yields drop on the first day investors have an opportunity to react to S&P's downgrade of U.S. debt.

Yeah, I'm sorry but the original post was having a technical error that I couldn't get to duplicate in order to fix it. As a result I had to completely delete the first post along with its 6 comments and repost it again. Sorry James!

Kellene, this delayed response is only because I'm almost speechless over this seemingly dramatic turn of events. I read this post immediately after it was posted yesterday and several times since. Also passed it along to several family members and looking forward to today's second part. Thank you.

Wow! Now I get it...the poker game was the perfect analogy! Amazing how you can help even "the little minds" to understand this mess. Maybe you should give a class to congress..they seem to be lacking in their judgment for what is best for our country.

Due to some technical errors yesterday in posting the article, I was forced to delete the first article and repost it. Unfortunately, doing so deleted the great comments we had as well. So I'm reposting those comments individually here so that you can still enjoy their insight.

From "Cliff"
Cliff #
08.08.2011 13:17 (e)
1

I wanted to pass along a couple of observations if you will allow me. I’m nearing middle age at the ripe old years of 60. I’m retired from the Air Force (Master Sergeant) after giving them 23 years. I’ve lived in pretty much every part of the world and have a little bit different world view than a lot of other people who have never been out of their neighborhood.

In all my years of keeping people alive and teaching them how to keep others alive I became quite the observer of people. I am fairly acutely aware of my surroundings at all time. Hmmmm, makes me sound like a nut case. Anyway, we’ve always stocked food and stuff for the family because we’ve lived in places where the base runs out of food a lot and there is very little to buy on the local markets. Anyway, enough background.

I’m a bit of a gun nut and have more guns than most women have shoes. But, I collect and shoot for practice and fun and don’t kill any living thing (that could change at a moments notice if someone kicked in the door at night). As part of my obsession I go to a lot of gun shows. I went last Saturday and was really kind of shocked at what I saw. This was a medium size show and they usually have one major ammo seller there. There were 3 this time. I saw a whole lot of ammo go out of the door in 500 and 1000 round packages. That’s not overly unusual. I saw a lot of families there. That is very unusual. I saw children being fitted for gas mask, web gear and back packs. I saw husbands and wives picking through the guns. There is usually an overflow of military surplus rifles, but this time I saw only one case of Mosin Nagant 91/30 rifles and talked a couple out of buying one (only 99 dollars) but they might shoot it once, they might shoot it twice but never more than that since it kicks like a mule. I also reminded them that it was a military weapon and killing was its only purpose and if they shot someone at their door they might also kill the neighbor across the street and the house behind that one too. Anyway, got them fixed up with a 12 gauge pump for only about 75 bucks more and the ammo is cheaper. I saw a lot of gangsta folks (not stereotyping, just calling it what it is when the hat is sideways, the shoes are untied and too big and the pants are around the knees and they can’t let go of their crotch or the pants will fall off). There were a lot of handguns being bought in quantity by that group. I saw several old guys on walkers that I figured were having to sell off their guns to pay bills but they were buying and when I asked why (you can tell how shy I am about talking to people) they just said it’s not safe to sit in the living room alone. I talked to a coin seller there about buying silver. He said he sold all he had in the first 5 minutes of the show and had nothing left. I came home with goodies but that’s beside the point. On the way home I stopped in at 5 pawn shops. At every one of them I ask for silver and they all said they were buying but not selling and that it was going up a lot. That’s a mass movement in regular people buying silver and some gold.

The crops are cooked in the fields right now or drowned in the floods so I’m not sure where next years food is coming from. I’ve got plenty for us and plenty for charity but even charity has to have a limit.

Another small thing I noticed, a metro bus was on fire and blocking half the road. The fire department was there but no police presence. Everyone had to figure the best way to get around, and unfortunately once someone took to front yards everyone followed. Two hours later when I came back by there were still no police there. They no longer respond to minor accidents or even minor thefts and assaults. I think they sit behind bullet proof glass and polish their SWAT gear most of the time.

The crux of the issue and what I see is that the world is changing fast. More people are feeling the ill wind. It’s past time to do what you need to do. When the masses start to run there’ll be no way to stop them.

My husband & I went shopping yesterday at the local Winco (discount you-bag-it grocery), and I saw something startling: 3- and 5-gallon food-safe buckets, oxygen absorbers, and gamma bucket lids in a display near the bulk foods section. I bought some, and ordered mylar bags online because our local preparedness shop (which opened less than a year ago, and is doing great business) is temporarily out. I’ve been working on my long-term food storage for a while but lately feel anxious to pick up the pace!

I don’t talk about prepping at work, since I work in a very liberal city, but a couple of co-workers have mentioned “food storage” and “stocking up” so I’m betting they’re preppers (because I know they’re not Mormon).

I also noticed during grocery shopping that the price of my favorite cornbread mix is OVER twice the price it was 18 months ago; I’m certain of the time frame because I moved to this town less than 2 years ago, and only started shopping at that store a few months after we moved here

Thank you for taking the time to keep us informed. Your peacefulness makes my peacefulness easier. We just buried a family member today. After the service we were finishing the clearing of apartment. I got the sense of preparedness. He was with me, and I chose thoughtfully and carefully. Others were almost flippant in their comments. May they have peace. I am not as prepared as I would like to be, but I have put into place some expandable options, and continue to build as I can.

Good article. About S&P one thing they have been criticized for now is that they did not downgrade or warn Fannie and Freddie in 2008. We will probably never know the truth, but I wonder if they were asked to not do anything then looked bad and so are not going to make that mistake on this go round! Our country is in such deep trouble and all I see is hard times ahead. I feel at peace from all of our gardening, canning and preparedness lifestyle we have along with being debt free.

Nov 2010: "I recently heard a quote from a famous man who played a big role in the settling and development of this beautiful mountainous area I live in. He warned that there would come a time in which if we did not grow our food, we would not want to eat it."

I have written in a few times before without an answer. Are you able to list a reference other than Brigham Young....I would like to have the content of the quote to share, but am at a loss at trying to find it at all. You suggested googling it, but I've still not found it. If you've answered previously, accept my apologies, as it's impossible to find where you've posted before, the search function doesn't support it, thanks!

Marge, I have already sent you information on this on two occasions--personally. However, if you're not providing an accurate e-mail address, then it makes it a bit difficult for me to point you in the right direction.

Thanks Kellene for the information and the way you explained what's going on! Truly, so much of what is going on in politics and finances goes over my head! It's not that I'm dumb or unable to understand, but there are so many different combinations and denominators...I seriously get confused. All of the hypothetical stuff does nothing for me. You are able to explain things in a way that makes sense...where the rubber meets the road. So now, my question is...How does this affect us in our day to day lives? I guess you will go into that in the next installment. One question I have, what about investing in currency from AAA countries...like Canada for example?

Kellene,
A difficult approach for you to take I'm sure, yet very needed for all of us who are in varying stages of Preparing. You were able to include a sense of urgency without panic and/or "talking down" to your reader. (I've read a lot who do or imply "they know something we don't but they're sure not gonna share"... attitude.) From the most prepared to the least, knowledge of the "hows" may make the difference between making it through or not.
This article, in specific reveals your heart and intent; Thank You!

We have a medical situation of which we've found no info (substantial enough to count on). Don't really even know where or how to research the topic. My husband had a birth defect, faulty heart valve repleaced with a mecanical valve which requires a blood thinner perscription. Could you provide any helpful info or point me in the right direction for dealing with this? I've read some vague "replace it with this or go to this Holistic Dr, info". We are seniors and the $$ and physical abilities are challenging at this point in our lives yet feel very strongly that we are responsible for own well being. Thank you for any help or info you can provide.